"To integrate into the global economy is a challenge for every country in the region." Rachid M. Rachid Minister of Trade and Industry of Egypt

The integration of the Middle East into the global economy will deliver both benefits and disadvantages. To make the most of globalization, the region must overcome obstacles including negative perceptions of risk, the poor image of the region and the lack of capacity and necessary infrastructure to be a productive part of the global system. Focus on political and security risks should not obscure the fact that, even without those impediments, investors are likely to unfavourably compare the region to other emerging markets. The private sector must lead efforts to rebrand the Middle East, address its competitive deficiencies and convince people that global integration is worth the risk.

Integration into the global economy is a challenge for anyone who dares to buy into the promise of globalization and contend with its risks. There are potential pitfalls - investment losses, income gaps and diminished competitiveness. But isolation and the status quo are not acceptable. As Anoush Ehteshami, Head, School of Government and International Affairs, University of Durham, United Kingdom, concluded, "a fate worse than globalization is to not to be touched by it."

For the Middle East, the touch of globalization has to become an embrace. There has been progress - with eye-catching successes in Dubai, Jordan and Egypt, among others - but the basic impediments remain: negative perceptions of risk, the one-dimensional image outsiders have of the region and the lack of infrastructure, capacity and the bricks-and-mortar facilities needed to be a productive and plugged-in member of the global economy.

According to the United Nations, the Middle East's share of global foreign direct investment rose to 1.5% in 2004, up from 1% the year before. This was far behind China (9.3%) and Southeast Asia (4.0%). The trade picture is more troubling. In 1981, the Arab world accounted for 10.7% of world exports. Today, its share is down to 4.4%. Take away oil and that figure drops to 1.7%.

Box 4: The Community of Global Growth Companies

Twenty leaders of the most rapidly expanding companies in the Middle East convened to discuss challenges faced by Global Growth Companies. Global Growth Companies are companies that have demonstrated a clear potential to become leaders in the global economy within five years. The companies enjoy a strong industry or regional market presence and have both the desire and ability to become a global champion. The assembled executives highlighted the following challenges that they face in their continued expansion and internationalization: To reach the critical size required to access financial markets and build strong brands, the Middle East will need to become a less heterogeneous market. Local management courses and Masters programmes must be developed to address the lack of management talent and brain-drain. During the next year, the World Economic Forum will conduct workstreams to address some of these issues and will develop a specific thematic track for Global Growth Companies at our next meeting in Jordan, in May 2007.

Image is a problem; many Arab leaders are decried as inflexible, rich autocrats, their kingdoms atrophied. H.E. Sheikh Mohamed Bin Mubarak Al Khalifa, Deputy Prime Minister of Bahrain, complained that the Arab world is unfairly tagged as a source of oil and terrorism. He has a point, but Zachary Karabell, Senior Vice-President, Co- Portfolio Manager and Senior Economic Analyst, Fred Alger Management, USA, made a more compelling one. The hard truth is that, even if the political and security risks disappeared, many investors would unfavourably compare the region against other emerging markets, particularly in terms of key investor concerns such as infrastructure, ease of access to capital, bureaucratic efficiency and education (see Figure 3).

Certainly, other regions want to deepen links with the Middle East. The presence in Sharm El Sheikh of the Prime Ministers of Malaysia and Pakistan, as well as ministers and senior officials from Japan, India, Singapore, France and the US, was testament to this goodwill and outreach.

However, investors' perceptions matter. "A lot of dollars are no longer going to the Middle East now that Hamas [won the elections in the Palestinian Territories]," Khalid Abdulla-Janahi, Chairman of the Executive Committee, Shamil Bank of Bahrain, Switzerland; Vice-Chairman of the Arab Business Council, conceded. "Perception and reality are not always different."

To make sure that they do match, participants at the Summit took initial steps to launch a private sectorfunded branding campaign for the Middle East under the banner Red Carpet In, Red Tape Out. The move is appropriate since the private sector must shed its complacency. The recent growth of private equity firms and funds in the region is evidence that business is stirring.

"For the first time, we have seen a boom in this region led by the private sector," said Arif M. Naqvi, Vice- Chairman and Chief Executive Officer, Abraaj Capital, United Arab Emirates. Businesses are looking outward, applying pressure on governments to open up markets. Indeed, the Forum's platform for Global Growth Companies showed heavy interest in global expansion by Middle East companies (see Box 4), but called for greater efforts to create policy measures to assist them. This (in part) explains the growing number of regional and bilateral free trade agreements that Arab countries are forging even as they participate in multilateral negotiations. Saudi Arabia's accession to the World Trade Organization was a recent milestone.

Business is also promoting initiatives, such as National Competitiveness Councils, to assess and benchmark competitiveness. Efforts that are underway to raise standards of governance, transparency and accountability must be stepped up. Governments, meanwhile, are eager for companies to go global - and enterprises are responding. "This is the first time I have seen my government support me," Naguib O. Sawiris, Chairman and Chief Executive Officer, Orascom Telecom Holding, Egypt, declared.

The makeover of the Middle East, however, has to be designed and driven by the private sector. This requires corporate citizenship and daring leadership. Fortunately, the region is blessed with a large pool of skilled managers and workers. There is also a growing willingness to adopt a management mentality that emphasizes human resource development and equal opportunity.